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China Declares All Virtual Currency Transactions “Illegal”, Sending Crypto Prices Tumbling

Courtesy of ZeroHedge

China expanded its escalating crackdown on cryptocurrencies on Friday when its central bank declared that all activities related to digital coins are “illegal” and must be banned.

In a statement dated Sept. 15 but was only posted onto the central bank’s website at 5 p.m. local time on Friday, the People’s Bank of China said the latest notice was to further prevent the risks surrounding crypto trading and to maintain national security and social stability.

Naming bitcoin, ether and tether as examples, the central bank said cryptocurrencies are issued by nonmonetary authorities, use encryption technologies and exist in digital form and should not be circulated and used in the market as currencies. The PBOC specifically targeted overseas cryptocurrency exchanges declaring that it was illegal for them to provide online services to residents in China.

The statement is the culmination of years of failed crackdowns on crypto: China banned cryptocurrency exchanges from operating within its borders several years ago, but individuals in the country have continued to find ways to trade bitcoin and other digital currencies via over-the-counter or peer-to-peer transactions. More recently, the country banned all crypto mining, which however only prompted miners to shift offshore.

In May this year, a powerful Chinese superregulator pledged to crack down on bitcoin trading and energy-intensive mining, helping to send the price of bitcoin tumbling, only to rebound again. Financial regulators in the country have also gotten tougher on banks and payment companies and in June ordered them to take a more active role in weeding out crypto-related transactions.

This latest harsh directive, which sent Bitcoin dropping over 8% on Friday, comes as global markets have grown increasingly concerned over a debt crisis involving property developer China Evergrande Group, and which many speculated would lead to a surge in capital outflows via cryptos that bypass China's great firewall. The Chinese government may also be responding to signs that miners are disguising their activities to stay in business according to Bloomberg.

Vijay Ayyar, head of Asia Pacific with cryptocurrency exchange Luno in Singapore, said that while the Chinese government has made similar statements in the past, it is “a slightly nervous environment for crypto with the recent SEC comments and overall macro environment with the Evergrande news. So any comments of this nature will cause a sell-of in risky assets.”

Investors should expect “knee-jerk price reaction as China takes the wind out of Bitcoin’s sails,” said Antoni Trenchev, co-founder of crypto lender Nexo.  “The recent rebound from just below $40,000 has likely run its course for now.” 

The nation’s economic planning agency also said it is an urgent task for China to root out crypto mining, and the crackdown is important to meet carbon goals.


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